UK’s 4 biggest retail landlords face major risk from CVAs

shopping centre CVA
// 1/5 of shopping centre floorspace is exposed to struggling retailers or retailers in CVA or administration
// However, UBS’s findings were “higher than the companies’ reported rent impacted by CVAs”

Four of the UK’s biggest retail landlords are heavily exposed to struggling retailers and CVAs, according to new research.

Analysis from UBS has warned that around 20 per cent of shopping centre floorspace being let by the likes of British Land, Landsec, Hammerson and Intu are retailers that are either at risk of launching an insolvency procedure or are already in the midst of a CVA or administration.

UBS’s data came from 1477 retailers and 5666 stores across 50 shopping centres, and was based on weighing up floorspace exposure to struggling retailers rather than the typical industry metric of rental income.

For that reason, the investment bank said its findings were “significantly higher than the companies’ reported rent impacted by CVAs, which ranges from 2.7 per cent to 4.4 per cent of rental income”.

In addition, many of the struggling retailers have managed to either avoid store closures or succeed in securing some lower rents in their portfolios.

“The big unknown is the hits to the rental income,” UBS head of European real estate Osmaan Malik said.

“All of the retailers could decide ‘we’re going to go through CVAs, we’re going to cut our rents or we are going to move out of the centres that we don’t want to be in’, so it’s very difficult to judge.”

UBS said its analysis backed up its “already cautious” sentiments of the retail property sector.

It also reiterated its forecast of a further 20 per cent fall in the valuations of for shopping centres over the next two to three years.

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  1. There should be a revision to the antiquated practice of paying rent quarterly in advance. In and of itself, such a large cash call at the beginning of each quarter is enough to bring down a retail chain if it has any funding lines withdrawn or has a turbulent sales quarter.

    If landlords were more accommodating to monthly rental payments, as is the practice here in the U.S., that would give distressed retailers a chance to have more free cash flow to tackle their problems and hopefully turnaround their businesses, or shore up their finances.


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